Are these 3 companies offering bargain prices?

February reporting season certainly appears to have raised the level of volatility amongst many widely owned and followed stocks. This week has seen three newly listed stocks all fall in the wake of their earnings results. One of those, Dick Smith Holdings Ltd (ASX: DSH) dropped over 10% to a new all-time low, before finishing the day down around 9% at $1.95.

The other two stocks, Orora Ltd (ASX: ORA) – which demerged from Amcor Limited (ASX: AMC) – and Recall Holdings Ltd (ASX: REC) – which demerged from Brambles Limited (ASX: BXB) – both also experienced falls, however their share prices remain well above their lows.

Dick Smith

The exact reason for the 9% drop in its share price isn’t apparent from the retailer’s results. Fresh from its IPO, the company appears to have been sold by Woolworths Limited (ASX: WOW) for a song. It beat prospectus numbers by 4% to achieve earnings before interest, tax, depreciation and amortisation (EBITDA) of $41.7 million. This result represents a 6.6% sales margin and was described by CEO Nick Abboud as “an excellent result.” Full-year guidance was also reaffirmed.


While pro-forma revenue increased 4.3%, underlying profit was down 0.7%, with the Secure Destruction Services division appearing responsible for the weak result.  The outlook provided in the half-year presentation provided more detail than was given at the time of the demerger. While previous guidance stated that management was “confident in ability to deliver revenue and underlying profit growth for FY14 in constant currency,” now management has narrowed this general statement to – mid-single digit revenue growth with pro-forma underlying profit to be slightly less than revenue growth.


Interestingly, Orora’s share price remained flat on the day it released its results, but fell nearly 2% the following day. While underlying sales increased just 3.2% (reported sales were a much stronger 8% thanks to foreign currency movements), underlying earnings before interest and tax grew a massive 24% thanks to benefits from the cost improvement program flowing through to improved margins.

Foolish takeaway

Strange things can happen when companies float – some arrive with much fanfare and appear ‘over-hyped’, while others seem to be completely missed. The potential for mispricing of stocks under these circumstances can be quite high, making recently listed companies worth keeping an eye on.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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